How does your finance organization think about compliance?
Some companies see compliance as a nuisance, at best. It’s something that they must do to avoid breaking the law and getting thrown in jail.
Others take a radically different view—one that is paying big dividends.
In a new IDC white paper sponsored by Oracle, the authors write, “Progressive organizations are taking an innovative approach to compliance that moves their organizations beyond typical ‘check-box’ compliance for internal controls, segregations of duties and other regulatory requirements.”
Best-in-class companies are using the insight gained from compliance initiatives to enhance their business, improve their risk profile, and burnish their reputation with shareholders, customers and the public at large.
IDC calls this approach radical transparency: a progressive approach to compliance that provides lasting benefits to the organization and its stakeholders.
Leading organizations display strong, positive values such as trust and integrity. They are admired by their peers and competitors, trusted by partners and customers, and their reputations are stellar. Strong values, high-quality products, vision, ethical leadership, and strong financial performance are all characteristics of the most reputable companies.
At the other end of the spectrum, a poor reputation has negative consequences: revenue and profit suffer because others steer clear of the organization, seeing it as a risky provider or partner.
The great majority of legal and reputational risk emanates from financial malfeasance, with greedy company officers and others acting in criminal ways. Corporate accounting scandals such as those at Enron and WorldCom have shown how easy it can be for opaque accounting procedures to hide massive losses due to speculative behavior.
Radical transparency can sharpen internal corporate policies and culture in a profound way, burnishing corporate reputations and creating an overall culture of excellence.
Three key financial compliance areas pose the most opportunities for transformation:
Regulations are often a hodge-podge of laws; some are mandatory for every business, while others are tied to a specific industry or business model (public vs. private, for example). Without a suitable technology solution, compliance can become a manual, inefficient and opaque process.
Instead, organizations can implement risk management cloud applications to enhance financial oversight. This oversight helps support effective, risk-aware business decisions, providing an enterprise-wide view of compliance, and bolstering transparency for management control and stakeholder confidence.
According to the SEC’s International Accounting Standards Initiative, the only way to achieve fair, liquid and efficient capital markets worldwide is by providing investors with information that is comparable, transparent and reliable. One way to achieve this is to understand how your internal controls relate to accounting standards and your financial processes.
Many companies are doing compliance manually or with outdated technology, leading to errors, frustration or complacency. Organizations have an opportunity to streamline their internal controls and compliance processes, and extract business value while meeting the intent of the SEC.
Leading companies use technology to enforce internal controls, while still giving employees enough leeway to find better, more efficient ways of doing things. Processes are designed so that the controls are built into the technology, preventing work-arounds or policy violations.
These internal controls can have substantial benefits. For example, finance leaders in one U.S. state encoded their financial policies into their risk management solution, providing employees with tools that gave them visibility and sense of engagement. The organization granted employees access and privileges based on job role, and built proactive security and payment controls.
As a result of this transparency, employees identified and stopped $65 million in payments that otherwise would have been made in error.
Over the years, IT professionals have built complex, custom workflows to implement a compliance structure that met their needs—and then left it alone to stagnate. Customization is expensive and makes for brittle computing systems, and responding to the next major change is correspondingly hard.
One major benefit of the cloud is that the software is updated on a regular basis by the provider. This means that compliance processes are consistent with the latest regulations, and your company is always up-to-date; no more waiting for long, expensive upgrade or implementing manual work-arounds.
When financial compliance is done right, your business is seen as progressive and compliant. Organizations that are radically transparency can demonstrate to stakeholders that their best interests are being served, and use the insight gained from compliance initiatives to make better business decisions.
Portions of this article are excerpted from the Oracle-sponsored IDC white paper, “Radical Transparency: How Top-Tier Financial Compliance Can Unlock Hidden Value and Corporate Excellence” by Mickey North Rizza and Robert P. Mahowald.